Cut-Throat wrote:Buckets = Market Timing.
I didn't read it that way... to me it was more about how to handle your money in and around retirement with a view on the different timeline horizons vs type of asset vs potential safety/returns.
Buckets = Mental Accounting
And, I don't mean to be negative in using that term.
The idea of buckets can be useful to "derive" an asset allocation and a glide path, and to think about a "worst case" course of action.
Suppose you think that some asset allocation (AA) of stocks / bonds is appropriate for the long term: Perhaps, 60/40 beyond 8 years. In the short term, 4 years say, you want cash so market events don't concern you. In the medium term, years 5-8, you want low volatility so you opt for bonds of an appropriate maturity. Given the total number of years in your plan, you can easily calculate an effective AA of stocks / bonds / cash.
In a year's time, you replenish the cash bucket: That's the mental accounting: To do so, you must decrement the "long term" part of your plan by one year. You don't have to be a genius to see that you in effect have a fixed value allocation to the short and medium terms, and that your spending is essentially coming out of the long term bucket. Which is fine, in normal times. Rinse and repeat each year.
If the market does crash, you can tell yourself, "I thought of that". You have seven years remaining (in my example) of cash and near-cash to wait it out. In any event, you have time to decide if you need to take a pay cut.
The advantage of such a scheme is that it spreads out market fluctuations (up or down) over the remainder of the plan. Also, since in normal times the plan is recalculated each year, bad events can only occur in the first year of the rest of the plan.
I think it has much to recommend it.